Q4 2021 Welltower Inc Earnings Call

External environment for show and then we will be portfolios and Tim will walk you through our triplet businesses balance sheet highlights and first quarter guidance.

121 was a year marked by high conviction capital deployment.

Partner and talent acquisition and a powerful inflection in our senior housing business.

Our belief in the long term demand pieces for the senior housing proved out as we witnessed significant occupancy growth starting in the spring of last year, which continued through the historically seasonally weak winter season.

Just as importantly in the second half of 2021, we began to see a significant significant shift in the pricing power.

Interestingly, we found these pricing power during a period of relatively low occupancy levels. After all what industry or asset class do you know off that is able to achieve pricing power with the occupancy levels in the low 70% range Lo behold that pricing power continued to strengthen in <unk>.

Q4, and in the first quarter of this year, despite the impact of Delta and Omicron say.

Same store Revpar grew three 4% in Q4 falling a year over year same store revenue growth of four 8%, while the strongest quarter in the company's history and even more encouraging is the revenue growth in the U S exceeded 6% with the momentum accelerating through <unk>.

Quarter, John will walk you through the details in a moment.

I am not happy with our South bar bottom line results due to increased expenses, mainly from the omicron induced labor crisis I continue to believe we will see significant improvement throughout the year given the continued net hiring trends, we're seeing from our operating partners.

This assumes we don't expand as a highly infectious variant.

We can offset the higher cost of full time employees just as we have done during the years prior to Covid. It has a significant presence of contract labor.

Search pricing level that is the source of the source of the issue.

From a demand standpoint, we saw record interest in our product in Q4 that continued through January with inquiries up significantly from December however, a meaningful number of tourists got canceled or postponed as either the prospective resident or their family got COVID-19 or a community that did.

Having our employees to conduct the tour as there was a COVID-19 cases in their communities.

However, the towards has picked up meaningfully in recent weeks and we're starting to see strong sales activity, which should translate into higher net move ins in next three to four weeks.

If we're right about this you may see occupancy growth exceed seasonal trends, while offering in an environment of strong rate growth will protect this will put us into the double digit NOI growth range in Q1, only two excellent fodder throughout the year.

As disappointed as I am about the diminished bottom line flow through in Q4 due to $30 million for agency cost compared to only $5 million in Q1 of last year I continue to believe that our 2022 exit run rate and 2023 earnings power of this platform is unchanged.

Yeah.

Moving to capital allocation.

In 2021, we deployed $5 $7 billion across great real estate with fantastic, operator, and at even a better price.

The most incredible aspect of the story was the granular nature of execution with our media and transaction size of $26 million, we're not believers in elephant hunting as larger transactions, usually result in value accruing to the seller.

As you know we manage this company for a long time shareholders to increase our share value Q4 was no exception to this consistent trend.

Yes.

We have deployed $1 $4 billion of capital in Q4 across 20 separate transaction with a median size of $24 million.

I won't bore you with the details of every transaction, but I would be remiss not to mention a couple of them, which I'm, particularly proud of including a handful of trophy buildings in Boston and Florida at a very attractive basis.

But perhaps the most exciting investment of the quarter was the formation of our partnership with Andy and plan at quality senior living or <unk>.

It is hard to overstate, how strong of a team Andy and Glenn have built from conceptualization of the product to development execution and ultimately that operational excellence. For example, despite all the labor challenges that I've highlighted USL have used virtually no agency labor and their buildings are well.

Occupied Andy who is one of the biggest users of our data analytics platform is embarking on a multiyear effort to expand that Blake brand with the full support of our platform behind him.

I Hope you are seeing a pattern here with how our data and predictive analytics platform at trucks. Some of the best people in the business as we offer so much more than capital.

This network effect, our platform execution across multi year partnership that were formed over last few years will fuel our growth for years to come.

As Delta and Omicron induced challenges, we had that ugly head in Q4 capital deployment opportunity set only expanded and that continued in Q1, which is seasonally the weakest quarter from a deal activity.

After a strong close of 2021, we have already closed and approximately $600 million investment over last six weeks and I am pleased to report that our pipeline remains robust highly visible and actionable.

While our capital market backdrops remain volatile of late driven primarily by the fed headlines, we're well positioned to fund our pipeline with well over $1 billion of equity and availability of liquidity in excess of $4 billion.

We're proud of our capital allocation track record, both deployment and sourcing, but if capital markets volatility continues we will access different tools from a toolbox as we have done before.

Lastly, I'm very proud to announce our new partnership with Reuben brothers, which is buying every healthcare one of our largest operating partner Reuben brothers partnered by David and Simon Reuben is one of the largest family offices and awards and as the owner of Prime real estate and infrastructure, both in U K and globally.

They're also a pioneer of investing in alternative real estate.

And infrastructure as an early investor and owner of global switch Reuben brothers share our optimism for the exceptional growth trajectory for healthcare and wellness infrastructure at Society Ages, we're particularly excited about the prospect of expanding the platform together as Reuben brothers.

One some of the most prime land and real estate in the UK, Tim and I have said on this call. Many times that temporary degradation of cash flow doesn't necessarily mean, the extraction of value every which constitutes 16% our same store triple net NOI will be.

<unk> de Levered through these equity infusion from Reuben brothers.

Partnering with highly sophisticated global investors like Reuben brothers validates our view of the long term value of this business. Despite wall streets obsession with pointed time coverage in.

In conclusion I'm very proud.

For all of our execution in 2021 across operations capital allocation and partnership that stage is set for a multi year earnings growth as we find ourselves at the bottom up both secular and cyclical.

Cycles with unparalleled platform builds with advanced data analytics, 20, or so of growth vehicles with different partners and talent to execute on it.

Pandemic has been devastating for our entire ecosystem, but we have doubled down during this massive disruption given our high conviction investment theses you as our shareholders can rest assured that we will not be resting on our laurels and that will continue to dig deeper and wider mode with that I'll pass it on.

Over to John John Thank.

Thank you. So my comments today will focus on the performance of our management operating segments in the quarter, starting with our medical office portfolio in the fourth quarter, our outpatient medical segment delivered two 4% same store NOI growth over the prior year's quarter. Despite a 20 basis point decline in occupancy we continued to see strong re.

Tension rates at 86% in the fourth quarter and with increasing.

Construction costs and rising market rates, we will continue to push renewal rates and exchange and accept a reasonable level of increased turnover and related frictional vacancy as we maximize the value of the portfolio.

Now turning to our senior housing operating portfolio the strong demand based recovery in the senior housing business continues to strengthen the sho portfolio same store revenue increased four 8% in the fourth quarter of 2021 represented the first full period of year over year same store revenue growth since the beginning of the pandemic.

Occupancy grew 90 basis points over the prior year's quarter again, the first year over year increase in occupancy since the beginning of the pandemic and the largest year over year gain for any quarter since 2016.

Sequentially, the sho portfolio spot occupancy increased approximately 70 basis points during the fourth quarter to 77, 7%.

Compounding these strong occupancy trends is a notable shift in pricing power over the second half of the year operators have successfully raised and are again able to charge community raised rates and are again able to charge community fees, both of which were reflected in a three 4% year over year increase in revpar during the quarter.

And following an outsized increases in January and February renewals with little to no pushback, we expect further acceleration in revpar growth over the course of the year.

Geographically each of our markets, Canada, the UK and the U S are showing improvement in same store top line metrics through the quarter.

Our Canadian portfolio, which has lagged the recovery posted a year over year revenue decline of 3% in Q4 2021. However, the revenue decline improved intra quarter moving from a decline of four 2% in October 2021 to a decline of one 4% in December 'twenty one.

Compared to the prior year's respective months.

Sequentially. The Canadian same store portfolio grew at a revenue rate of one 8% in the fourth quarter.

In the U K, our same store revenue increased seven 8% during the fourth quarter on a year over year basis accelerating from seven 1% growth in October of 2021% to 9% in December of 2021 compared to the prior year's respective months.

Finally in the U S where the majority of our portfolio is located.

Year over year revenue growth in the fourth quarter was six 3%.

The acceleration in revenue growth was particularly pronounced in the U S accelerating from three 8% in October 21.

Versus the prior year's month to nine 1% in December .

Despite these encouraging topline trends expenses increased eight 8% year over year, driven largely by excessive agency cost the combination of holiday time off and omicron disruption led to an increase in agency cost in the quarter almost $4 five times agency expense versus the prior years.

Quarter.

Excluding agency cost expenses increased five 3%.

Stressing systems highlights opportunities and issues and the extreme stress in the health care system brought on by Covid has identified some opportunities to improve the value proposition for our hardworking health care workers.

The agencies have been a temporary temporary crutch, which you provided short term option for both operators and the health care workers.

That said the excessive use of agencies is truly short term in nature and the exceptional premiums that they charge as much as six times the base rate during the recent holiday period do not pass through to the agency employees, who typically do not receive benefits either.

The quality of life and their work experience is substantially less desirable than that of a permanent employee.

Agency employees lack the connection to their co workers and customers that they desire as they travel from site to site city to city and state to state on a daily basis, often away from their families.

Additionally agency employees or less efficient as they do not know the systems, nor the processes of the operator or the site nor the specific customer requirement.

Our operators have many workflows underway at this time to improve the value proposition for permanent employees, which were bearing fruit prior to the AMA calls.

Nonetheless, the result of these outsized expenses was a decline in same store NOI of nine 3% in the fourth quarter of 2021, but still marked an improvement from Q3 2021.

With over 50% of operators delivering positive NOI growth for the period.

The recovery continues to strengthen despite recent omnicom disruption.

And we remain confident in our ability to drive significant NOI growth in 2022.

Through January agency Labor expense has declined its death cases have fallen.

<unk> labor expense is expected to moderate further through the first half of 2022 and declined substantially in the second half of 2022.

The other disruption caused by Amazon was a record cancellation of tours, which self described however at this point weekly staff cases are down 81% from their peak, including an 89% drop in the U S and we are seeing operations normalize.

The disruption of tours and sales caused occupancy to fall about 20 basis points in January however, with the high level of traffic. We expect that the continued occupancy gains will return and that we will regain lost occupancy by the end of the quarter.

Here are some quotes from our operators about the strength of traffic and deposits.

Quote digital inquiries were up 36% over 2019 in the fourth quarter and continued strong in January .

And quote.

Our four week averages for inquiries tours and deposits are the highest they've been since August of 2021, we're seeing week over week growth in deposits up 10% the last four weeks running.

And quote where experienced experiencing the strongest January for inquiries in several years.

And finally, our inquiries from the last week alone had been the highest numbers we've ever experienced.

In closing I have shifted from full immersion in the business to planning in action.

I'm, even more excited about the future opportunities across the <unk> platform, we are leveraging our proprietary data analytics platform and operationalize the data to drive results. This process is occurring right now as we have several workflows underway, which we expect to bear fruit in the immediate future as well as many more workflows that we expect to drive our outperformance.

In the quarters and years to come.

It continued to be appreciative of the warm welcome and excitement expressed by our operators as we leverage our combined real estate operating company and care experience to improve the customer and employee experience and drive financial results.

Each operator has a unique expertise and opportunities we've been working very well together and offering support where needed.

From implementing best practices to applying data analytics to improve their business.

In one case, we identified a software tool over 25 years old.

As they say the nineties called and they want their <unk> back.

I am confident there is a substantial opportunity to implement operational excellence across the board and bringing the basic back office and sales operations up to match the high quality of care. The operators are delivering which will drive significant margin growth in the years to come.

I'll now turn the call over to Tim.

Thank you John .

Our comments today will focus on our fourth quarter 2021 results performance of our Triple net investment segment in the quarter, our capital activity on balance sheet liquidity update and finally, our outlook for the first quarter.

While our reported fourth quarter net income attributable to common stockholders of <unk> 13 per diluted share and normalized funds from operations of 83 per diluted share relative to guidance of <unk> 78 to 83 per share.

Our results included approximately $18 million.

Our <unk> per diluted share of HHS funds and other out of period government grants that were not previously budgeted.

Turning to our triple net lease portfolios.

As a reminder, our triple net lease portfolio coverage and occupancy stats reported a quarter in arrears. So these statistics reflect the trailing 12 months and a 932021.

And our senior housing Triple net portfolio.

Same store NOI increased four 2% year over year driven.

Driven by improvements in rent collections on leases currently in cash recognition.

And the early impact of rental increases tied to CPI.

We expect the impact of both these trends to accelerate in 2022.

Rent collections improved.

Given that 20% of our leases are subject to CPI based escalators.

Trailing 12 month EBITDAR coverage was <unk> eight times.

Looking forward, we expect coverages to inflect positively in the first half of 2022.

As year over year improvement in fundamentals filed deposit trends expected in our senior housing operating portfolio.

Next our long term post acute portfolio generated negative 8% year over year same store NOI growth.

However, similar to our senior housing Triple net portfolio, we expect NOI growth to improve in 2022 through greater rent collections on leases currently in cash recognition as well as CPI based rent escalators.

Trailing 12 month EBITDAR coverage was one nine times.

Over the course of 2021 and completed $458 million and long term post acute dispositions at a blended cap rate of eight 7% with an additional $108 million under contract for sale at year end.

As a result, our long term post acute portfolio represented just five 2% of total in place NOI at year end versus 10, 1% at the end of 2020.

Our 490 basis point decline driven largely by the exit of our Genesis relationship.

And lastly, health systems, which is comprised of our pro <unk> senior care joint venture with Pro Medical Health system.

And same store NOI growth of positive, 275% year over year and trailing 12 months EBITDAR coverage was three nine times.

The sequential improvement in coverage was driven by the previously announced agreement to sell 25 assets that are <unk>.

Contributing negative EBITDAR.

As of year end, we completed the sale of 21 of those assets with the remaining four held for sale.

Turning to capital market activity, we continue.

To enhance our balance sheet strength and position the company to capitalize on a robust and highly visible pipeline of capital deployment opportunities.

Utilizing our ATM program to fund those near term transactions.

Since the beginning of the fourth quarter, we sold 11 3 million shares via a forward sale agreements and initial weighted average price $85 six per share for expected gross proceeds of $961 million.

We currently have approximately $11 1 million shares remaining unsettled, which are expected to generate future proceeds of $949 million.

This is in addition to $220 million of.

As expected property dispositions and loan payoff proceeds.

During the quarter, we also issued $500 million of 10 year unsecured debt maturing in 2032 with a coupon of 275%.

Following similar discipline in their equity funding strategy. This is our third unsecured issuance in 2021, bringing full year issuance to 175 billion with an average duration of nine five years and a coupon of two 6%.

At year end, when factoring in cash and restricted cash balances our liquidity position exceeded the $4 billion of borrowing capacity on our line of credit.

When combined with the previously mentioned $1 $2 billion combined unsettled ATM proceeds expected disposition proceeds we are in a very strong liquidity position heading into 2022.

We ended the fourth quarter was $6 95 times net debt to annualized adjusted EBITDA.

Slightly from last quarter.

Leverage is impacted by the timing of one 5 billion net investment activity completed later in the quarter if.

If we run rate impact net investment activity completed in the quarter pro forma net debt to adjusted EBITDA decreased to 675 times.

We continue to be pleased with the momentum of our top line recovery and our senior housing operating portfolio.

With portfolio spot occupancy ending the quarter at 77, 7%.

70 basis points higher than the end of the prior quarter, but still 950 basis points below pre COVID-19 levels.

Portfolio also said 300 basis points below peak occupancy levels.

Setting the stage for powerful EBITDA recovery as occupancy upside in strong rate growth is coupled with significant margin expansion on a very depressed base.

Lastly, moving to our first quarter outlook.

Last night, we provided an outlook for the first quarter of net income attributable to common stockholders per diluted share of <unk> 17 to 22 per share and normalized <unk> per diluted share of 79 to 84.

Or <unk> 81, and a half cents at the midpoint.

This guidance takes into consideration approximately $6 million or $1.05 per share of HHS funds expected to be received in the first quarter.

Excluding the HHS funds, the <unk> 80 per share midpoint of our first quarter guidance represents a penny and a half sequential increase from an as adjusted $78.05 per share number for <unk>.

Which excludes $18 million of previously recognized HHS and out of period, you can't Canadian subsidy is recognized the quarter.

This one 5% increase is composed of two five from a sequential increase in senior housing operating portfolio, NOI and fourth quarter investment activity.

And an offset of <unk> increase of sequential G&A and income taxes.

Underlying this <unk> guidance is estimated first quarter total portfolio year over year same store growth of 7%.

Driven by sub segment growth of outpatient medical 1% to 2% growth long term post acute 1% to 2% health systems to 75% senior.

Senior housing Triple net 5% to 6% and finally senior housing operating.

Growth of approximately 15% driven.

Driven by revenue growth of 10%.

Underlying this revenue growth is an expectation of approximately 420 basis points of year over year average occupancy increase.

And with that I'll hand, it back the call back over to Sean.

Thanks, Tim.

Wanted to conclude this call by addressing something that we usually don't talk about it.

And that is our comprehensive team.

We have completed a completely overhauled and upgraded our team.

And this was a multiyear effort building out new areas, such as predictive analytics to create a truly scalable platform with extremely low voluntary turnover.

We continue to hire the best and the brightest to fight that deepen our capital allocation expertise.

Historically, the majority of the Alpha we created have been through as skewed raising our deployment of capital.

Over the last 15 months, though we have also built out an industry, leading and frankly, a very significant development team under the leadership of Mike Ferry and I should mention.

The last piece of this puzzle is building out our operational excellence and asset management capabilities. This started with the hiring of John in 2021, John is building out a world class team that will accelerate value creation for our shareholders for years to come we have added a net 51 people last year.

We will likely to add another 80, new colleagues in 2020 too.

Many of you who follow our company closely understand that that our asset platform is like a coiled spring today, we spend heavily during the pandemic, but most of these assets are sitting with low occupancy and then does cash flow, which is about to be released and search forward to.

Realize its full value.

Similarly, the people side of our business platform is also a coiled spring today.

You are only seeing them in G&A line, but the full contribution to the revenue line will be seen in 2023 and beyond.

With that operator, please open up the call for questions.

Thank you Sir.

If you have a question at this time. Please press the Star Key then one key on your Touchtone telephone.

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We ask that you keep your questions to no more than one but please feel free to go back into the queue and if time permits we'll be more than happy to take your follow up questions at that time.

Our first question comes from the line of Jonathan Hughes from Raymond James. Please go ahead.

Hey, good morning.

I wanted to.

Ask about the quality of the operator relationships in the pipeline or maybe generally out there in the seniors housing industry.

I'm just wondering what the landscape looks like after a couple of years of pandemic related headwinds and you have a few in progress <unk> had successes.

Several over the past few years, but how many high quality operators remain as an opportunity that you already have a relationship with and.

What's the size of those individual opportunities or are they smaller and larger in terms of investment volume and the relationships established over the past few years.

Fantastic question Jonathan.

As I sit right now I can think of two operators.

That in U S, particularly this.

This is a U S specific comment and they will probably be the same for UK and Canada that I can think of to specific operators that we don't have.

Relationship today that I want to have a relationship one of them, we already have shaken a hand shaking our hands this quarter likely probably we're going to talk about at next quarter's call.

So what you're likely to see that means is we generally have the operator base. The platform that we wanted to build you will recall that before pandemic, we've talked about with you that we have a map right.

And that map, we have different ideas of where the different types of activities of assets should be and what kind of operator should be running those right. We kind of generally feel that math now what youre going to see we're going to go deep and so going broad, which you have seen over last call. It 18 to 24 months, you're going to see US go very deep.

And that sort of talks about we have a slide on our presentation. You can see that we talked about give or take these 2000.

25% to 30 relationships across all asset classes, not just senior housing senior housing medical office and while Theres housing all three platforms that we are growing pretty significantly that we think create a very significant opportunity for external growth that we estimate could be upwards of $2 2 billion last year.

For a decade to come.

But that's sort of how we're thinking about it as going deep and so going broad, but we'll talk about hopefully another exceptional operator relationship next quarter.

Okay. Thank you.

Next question comes from the line of mixed Joseph from Citi. Please go ahead.

John you talked about the challenges with the staffing.

Agency model as you think about coming out of Covid do you expect the business model or expense load to change to rely less on agency staffing or is this more of a perfect storm.

Hard to actually change going forward to limit the use in times of crisis.

No. Thank you Nick.

So my expectation is that that the business will at least get back to historical standards where agency.

A small part of the whole picture just assistance.

Assistance piece, but frankly with the workflows going on yes.

I think it's a very strong chance that agency.

Agency diminishes, even further because.

What has changed is the world has gone from a situation where there is an abundance of employees to a scarcity of employees and so the employers now.

The good ones have recognized that fundamentally changed how they look at things recruiting has become a sales machine with kpis for the recruiters et cetera. The value proposition has changed dramatically people are looking at what it what the employee experiences words that whenever set employee experience you'll hear that.

They are looking at that and they are trying to figure out how to optimize so some changes that are going on or people are realizing like hey, we should change our hours slightly for some employees because they have to drop their children often school. They can't work here because of when we start not a big deal for US move at an hour and it works perfectly for them lot of things like that are changing so I think from my.

Respective it's great for the hardworking health care employees, it'll be great for the operators.

We will further diminish the agencies, but it will take time for this to tail off as I mentioned in my comments. So it won't happen overnight, but I think long run run rate would be great.

Thank you.

Our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Thanks, so much for taking the question. So just a question on rent growth or Revpar and margins and just two parts to it.

Just one in the <unk>.

In the strong pricing power you are seeing can you talk about the mix between the in place bumps significant re leasing or the spread you are seeing today and what your expectations are and then on margin in.

In your bridge, maybe just not the right way to look at it but in your bridge. It seems like you're embedding maybe a 60% to 70% incremental margin seems like it's reasonable, but how are you thinking about the incremental in the context of pricing power.

Yes.

Yes, so on the on the vantage to get two questions and that was good.

On the.

Yeah.

On the on the re leasing versus the market clearly net effective markets are up significantly there were concessions and community fees that were concessions that were given communities that were waived that's all reversed itself and.

And so certainly at one point, if you go back and the industry market rents were below in place that's now changing.

And from an in place perspective and overall.

Rents are moving up pretty significantly very consistent with the comments that Ashok made previously with the expectations of.

Mid fives to.

<unk>.

10% in that zone.

What we're seeing is a lot of strength in the marketplace and a recognition that cost.

Cost have come up and it takes a.

The amount of money to provide great care and that's what people want.

Victim to answer your second question, we are getting you back to the pre COVID-19 margin on that slide I think youre, referring to slide 17.

There is no question that if you have pricing power that will improve but remember you also have higher labor costs.

To the extent that you have.

Higher pricing fall are in excess of higher labor costs, Youll see upside to that margin, but it is getting you back to Q4 margin.

Q4 up 19 margin for the portfolio that was there in Q4 up 19.

Thank you.

I show. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.

Hi, everyone. Good morning. So in 2021, you had $5 7 billion and gross investments off to a solid start here in 'twenty. Two so do you believe 2021 number is the high watermark is that level of acquisitions repeatable or even vehicle. This year and is there anything.

Change in your terms of your ability to source opportunities or even competition for deals since our last call.

Has anything changed the answer is yes, if you think about.

What we have been saying that we are mostly focused on what we have been buying.

Can see the average age of those assets would indicate that the children.

Supply over cycle of 15% to 19.

What you have is disruption from the revenue side because of all these way and then you had a disruption from the cost side because of our employee situations as we've talked about something changed that something has been lost call. It 45 days and that is what you didn't have is the pressure from financing cost all construction loans.

I've made on LIBOR right pretty much all construction loans are variable rate LIBOR based loan.

And obviously, if you look at the how the outlook for fed has changed over the last call. It 45 to 60 days you can imagine that part pressure is just about to come which is high financing cost so something has changed.

<unk>.

Now going back is this the level of acquisition possible a beatable.

So to that question is very simple, we're not a volume driven investor were value driven investor. If the volume is there to create partial value. We will do it if not we will not do it that just a simple how allocate capital.

Success of our team is not measured at least I'll ask team in our opinion is not the growth of the enterprise, but our share value creation for existing shareholders. So as long as that opportunity is there we'll absolutely do it.

Thank you.

I show. Our next question comes from the line of Steve Sack Kraft from Evercore ISI. Please go ahead.

Yes. Thanks.

I guess I just wanted to circle back a little bit on the guidance just to make sure I understood the 10%.

I think revenue growth that you talked about four for show.

Again, what was occupancy and what was rent and and then what is included in the expense side from the elevated levels that you saw in Q4 are you sort of assuming the same level in Q1 as Q4 or did you assume some moderation.

Yeah. Thanks, Steve.

So on the revenue side, we are assuming 420 basis points.

Occupancy increase on a year over year basis, driving that 10% revenue growth for the remainder of that revenue growth is being driven by.

Great.

And on the expense side.

The best way to look at it sequentially Im talking a lot about.

Agency labor.

We're assuming a sequential reduction in agency labor and about 10% from the fourth quarter to the first quarter the net pool.

That's supported by early trends we've seen.

In the quarter.

Thank you.

I show. Our next question comes from the line of Rich Hill from Morgan Stanley . Please go ahead.

Good morning, guys.

I recognize you're not giving a full year guide, but I think back to <unk> 'twenty one.

With some bread crumbs, given on where renewals and maybe street rates are trending based upon my notes one of your competitors have talked about.

8% renewals and I think you had talked about one five to two times faster than renewals for street rate.

I'm wondering if you could just provide any updates on that as we think through what full year 2022 might look like.

John just talked about that.

The street rate comment I made is a net effective rent.

You are seeing because obviously the concessions that were given.

The lack of community fees, you had effective net street rate is moving up because of that not necessarily the faces moving but the net effective rent is moving.

We continue to see in fact, we have seen.

Some cut.

A couple of our operators have now moved street create evolve in place trend a couple of our very large operators have gotten much closer so it's a pretty encouraging startup.

As we look in the future.

Tim just walked you through at our 10% guidance means from a rate and occupancy perspective and that sort of gives you. The second answer that question right. So we are in a shop, we're focused on.

Ultimately optimization of revenue not necessarily one component of the revenue and on top of that you have to think about one component of that revenue comes with higher cost, which is labor rate. If you just occupancy.

Which obviously rate doesn't so we're trying to optimize all of those things together and thats sort of blends to what we've talked about which is a 10 ish percent revenue growth in Q1, 15%.

AOI growth in Q1 and that NOI growth should continue to accelerate as we get to the year for two reasons. One is as you build occupancy you will get obviously your marginal margin will expand obviously rates so that thats one point.

You will get a continuation of sort of bar and off of the agency labor that you've got so that's sort of two things together you will get an explanation of NOI growth as we get to the second half of the year.

Thank you.

Sure. Our next question comes from the line of.

Juan Sanabria from BMO capital markets. Please go ahead.

Hi, good morning, Thanks for the time.

Recognizing again, you're not giving full year guidance. We're wondering if the larger operators space talks about.

Five to 600 basis points of occupancy growth for the year is there a target. So curious how you feel excluding any new COVID-19 wave.

How how that feels to you.

Particularly given seasonality is still apparent in that business typically you don't necessarily gain occupancy outside of the third quarter. So just curious about your general commentary and targets for occupancy growth for the year.

Yes. So first you said the magic word excluding any more new variant right. So that's a very important mark you mentioned there.

<unk> that I'm not going to venture a guess of what it will look like.

I will tell you there are a couple of things to think about.

Last year, you got a massive disruption in Q1, we got a significant occupancy loss.

Started at a big hole and you have to climb up that hole to get to a point where on an average basis. You can build out documents. So you don't have that problem. This year right John talked about January our occupancy from point to point is down 20 basis points, which is probably will make this January the best January we ever had seasoned.

LNG perspective, so you don't have a hole to climb out.

Second.

You have better demographics. This year you can see the demographics is building.

So you have more demand there and that sort of playing out for all the leads and other data that John disclosed on his script tart you have significantly lower number of deliveries this year right.

And then if you under your assumption if we don't get hit by four waves like we did last year.

And hopefully that will translate into better occupancy growth I am not going to comment on any specific operator or.

Ill try to sort of enter I guess or what.

What <unk> is going to look like however, the table is set if all of these things. We just discussed lay out we will see a better year, but we're long term investors, we're not focused on.

How occupancy plays out this quarter versus that quarter, but we're pretty optimistic because of what the underlying trends we see in the marketplace.

Thank you.

I show. Our next question comes from the line of Mike Mueller from JP Morgan. Please go ahead.

Yeah, Hi, just curious on the watermark transaction.

The pricing difference between the.

The entry fee assets versus the rental just in terms of like a rough cap rate difference.

Mike, we're not going to get into.

A specific deal let alone.

Within this specific deal right, obviously as you know how these things play out is that you sign a confidentiality agreement with the seller, we're not going to get into it we have talked about I believe in the last call.

What we like about that transaction is.

The price per unit was very attractive to us b cell of the underlying land.

Ultimately as you are thinking about real estate investment and you have to think about the dark.

Exceptional dart and three we think there is value to be created.

Because of what these assets are in the lands that come with it and what you can do with the Sony with all of those three combined we are very excited about.

The.

The portfolio, we bought but we're not going to get into economics of a specific deal let alone different parts subset deal that does put us in a significant violation of confidentially agreement that we've signed.

Thank you Shannon.

Our next question comes from the line of Conor and Seversky from Baird. Please go ahead.

Good morning out there thanks for having me on the call.

To keep this simple focusing on senior housing in particular in consideration of the value based investment approach. So in this positive environment for pricing I mean, do you expect to see some cap rate compression. This year increased competition and then.

Just how does this change the opportunity set for you does that mean more excuse me granular transactions or.

Perhaps a restriction in activity on your end or expectations on your end.

Yes, carload I answered. This question earlier I was just going to repeat what I said.

What's changed is desert tarred stress that's coming.

And that's because the majority of.

No.

Instruction.

Loans are done on a floating rate basis, if not all of them are done on a floating rate basis.

And you have a very significant sort of a potential increase of LIBOR, that's coming to the pipe.

That will put even more stress in the system.

And the second point is we're not cap rate buyers. It is hard to cap rate as a stabilized concept for senior housing is anywhere but stabilized at this point I do not expect cap rates. Even if you are talking about in the context of stabilized.

That rate I do not believe there is going to be cigna.

Significant compression in fact, I think a lot of institutional investors are looking at all asset classes, including many we own and then we've talked about historically.

That underlying growth rate versus inflation add southern Capex makes no sense right I've talked about for example, four quarter softer quarters that given sort of the outlook of what the forward cargo is telling you.

Inflation breakeven another it made no sense to me for what people are paying for <unk> with 2% growth rate. Finally, it seems like there is.

Obviously understanding on the institutional investor side people are waking up to say what did they buy for this and how do I make return.

So I think there has to be Eric conciliation off.

When you look at your IRR you have to think about what is the real growth for us as a nominal growth.

That's going to show up that's going to show up at your exit.

We're long term IRR virus, we think through these things and Thats why we refuse to chase the market you have seen that for years and years, we have done.

And there is not going to be any different in that discipline going forward.

Thank you.

Our next question comes from the line of Rich Anderson from <unk>. Please go ahead.

Thanks good.

Good morning so.

Sean you have said in the past that you are not.

To be an elephant hunter.

How do you get noise in the system. When you go to big and I can appreciate that but that is a different man.

<unk> versus your predecessor.

So if youre not willing to be a buyer.

Elephant Hunter.

Is there anything that you could see from from us from a sales perspective that could be.

If youre a $26 million average deal price on the buy side. What do you think your average deal price would be on the sell side given that mentality toward.

Very good question extremely astute observation look at 2020 and look at how many billions we sold and if you looked at the disposition you will see sales were done on a multiple of the buys right I don't know exactly what the number is but it is likely to be multiple off that 24.

$26 million that we mentioned we want to buy retail.

<unk> and <unk>.

By wholesale and sale of retail that's what we do right.

Fundamentally no matter what investment class you off.

Something very simple how you make money is buy low sell high onstream.

<unk> is how you allocate capital to make money. So so portfolio. When there is a lot of hunger in the market to buy stock and asset class.

The portfolio of premiums are real.

Go sell portfolios Baidu by smaller assets I think we mentioned that $5 $7 billion, we bought medium size of the transaction.

Median size of the building median size of the transaction was 26, but that's how we create real value.

Thank you I show. Our next question comes from the line of John Pawlowski from Green Street. Please go ahead.

Hey, Thanks for the time, John as you tick through the shop portfolio, either by property type al IL al memory care or geography are there any signs within the portfolio of structurally higher vacancy rates, while where maybe move in percentage of it is.

Just not improving in recent months, our occupancy has actually sliding here.

No.

Each area is.

Improving across the board with the <unk>.

Starting point that we're out right now is of course pretty low so the bar is low to build from.

As we get to an optimal level, which would be substantially higher.

Question is a good question and there may be some some things that become more apparent but.

At this point in time everything is working across the board.

Thank you.

I show. Our next question comes from the line of Michael Carroll from RBC Capital markets. Please go ahead.

Yes, Thanks, Tom I wanted to transition to the Triple net portfolio for a second.

Tim can you quantify how many triple net tenants are on a cash basis today and what's the difference between the current cash is being paid and recognized compared to the contractual rents on those leases.

Okay.

In the first quarter, sorry in the fourth quarter about 15% to 20%, it's kind of stayed in that range.

Promotional last few quarters. So that's the quantum of kind of.

Of.

Of how much of that in place rent is being recognized net cash basis.

I don't have the GAAP too.

To contractual right now.

But Mike remember.

All are.

Triple net senior housing portfolio is in U S and UK right.

And you can see how much that cash flow.

Inflected at or expected to be inflicted this year because they are obviously on cash the underlying.

NOI, what we eat and underlying NOI going up significantly which is translating into that same store triple net.

Growth expectation that Tim just gave you.

In other words, we took the head by putting it obviously on cash recognition. So we talked about that on many calls now we're on the other side of that.

Thank you.

I show. Our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.

Great. Thanks, good morning.

So all your commentary on the labor expense that was definitely helpful. I guess I'm curious for the $30 million of the agency labor expense.

In the fourth quarter is there any further color on whether that was fairly evenly spread geographically across the shop portfolio or did you find that is geographically concentrated maybe in a few markets and also cinzia will have more of an urban footprint and shop overall, just any generalization from your view weather labor shortage issues are more or less prevalent.

And rural versus urban markets just in general thanks.

Sure.

Great question, and we've done an awful lot of studies on that particular issue leveraging our data analytics team.

The interesting thing that we found is it.

Gets back to my comment on stress identifies opportunities and issues and.

When looking at it closely clearly some markets can have a level of stress specific to that market, but then when you dig deeper and you find out that tremendous amount of assets have zero labor and selected assets have a lot of agency selective assets have a lot of agency.

The cause of that is a combination of <unk>.

Some cases omicron came in and had a material impact on a great amount of staff, which is no surprise and other cases my belief frankly is leadership.

And that's partly what gives me great optimism.

Moving forward in solving this because the leadership issues are solvable and leadership issues that this is one indication, but they also tie to other issues occupancy et cetera. So this frankly it helps us identify.

Some situations that will as we make adjustments, we will improve things going forward dramatically.

So hopefully thats helpful. Thank you.

Thank you.

I show. Our next question comes from the line of Jordan Sadler from Keybanc capital market.

Thank you guys good morning.

Sure.

Good morning.

I wanted to.

This is sort of a little bit of a two parter one I wanted to clarify the.

Contract labor assumption embedded Q1 I think you said down 10% so.

$30 million of expense becomes $27 million, so that the way to think about it and then.

<unk>.

Just kind of thinking about the cadence.

Your guidance for the shop portfolio in particular right last time, you gave sequential guidance for <unk> right. We ended up with a surprise variant late in the quarter that ended up.

Providing pretty significant headwinds, especially on the labor front.

And pressured.

Numbers lower relative to original expectations, where I'm curious.

How much that experienced in the fourth quarter impacted short.

Decision surrounding guidance for the first quarter in other words.

Appears kind of conservative relative to the.

A moderation of expenses and what seems to be a flat occupancy assumption.

For the first quarter overall.

The fact that you only lost 20 basis points in January so I know Thats I've asked a lot there, but I'm basically asking about the cadence on giving guidance.

Yes, so John why don't I start and tumult finished first is on <unk>.

Q1 is seasonally a weak period from an occupancy standpoint, so John talked about we're down in January about 20 basis points.

What kind of thinking obviously, the sales activity picked up pretty significantly towards have picked up and we are thinking.

As sales picked up Youll get some lag rate call. It 20% to 30 days lag from sales to occupancy so that kind of puts you at it.

Towards the end of the quarter. So you don't have a lot of time to pick up that occupancy rate. So that's sort of I wouldn't call that a conservative right I wouldn't call that what we think was going to happen. The op 10 downturn, okay, but that's sort of generally speaking I wanted you to understand what we're thinking about which you are right.

On average quarter average Q1 occupancy goes down about 70 80 basis points.

So you get sequentially flat, which would probably put on average are flat and significant year over year growth.

That's a pretty good outcome because you have to think about what that means for the rest of the year right. It's not about just Q1.

The second point is.

Look I mean.

I am pretty disappointed about the bottom line results in Q4, there is no two ways about it we did not expect the omicron will hit us like the way it did.

And frankly speaking there's 45 more days to go in the quarter and as we have seen a highly infectious varian comps and how that can impact you.

Quarter to quarter, Jordan, who knows right.

Focused on.

What's the real run rate earnings power of the platform and what we see is pretty exciting at least what we see today.

But it's hard to get into specifics on when things happen that you have an operating business right, which is driving the margin on differences try to get very very sort of prescriptive.

Prescriptive about how exactly things are going to play out its hard to comment.

I would just add the labor piece of that agency piece Jordan. So your math is correct on the expectation kind of the step down.

I don't think what happened in the fourth quarter necessarily changes.

Certainly very carefully as anywhere by conservative, but we're forecasting but the variance and what we've seen happen over the waves.

The labor disruption has been much greater than the demand disruption takes it over the last two ways in Abercrombie.

Significant labor disruption, so certainly changes when you forecast from the inputs and confidence levels around it so that saying it's conservative it's more of a.

There's a lot of uncertainty in the short term.

The labor piece and how it's impacting labor market.

It being different variances.

The phase III I think a longer term forecast right now so.

I think as I said earlier I think the early trends we're seeing.

In January are very supportive of our view on the step down in agency and we thought that was going be a little bit more back half of the quarter weighted.

But.

General and still stands as a pretty good assumption.

Thank you.

I show. Our next question comes from the line of Nick <unk> from Scotia Bank. Please go ahead.

Thanks, So I just wanted to follow up here on this agency question. So.

It sounds like it could be about 27 million for those costs in the first quarter or if you go back to the third quarter I think it was $20 million. So still up versus then and just trying to hear a little bit more about your assumption for y.

At some point that expense, which is about 3% of your expenses.

It goes away and why you're confident that it's a COVID-19 issue and not a tight labor market issue, that's driving the use of.

That agency costs.

Well, it's both no doubt about it it's both and when you look at the fourth quarter. Some more color on that is you've got some health care workers all of the health care workers, who have worked unbelievably tirelessly work and did not take PTO.

For a long long periods of time. So you had increased PTO that occurred around the holiday season, and then you add in Omicron and you get the result of the agency at six X. So agencies, usually two to three times the rate and it got as high as six exits.

Surge pricing kind of like Uber, so as that backs away that will lower the expense regardless of the hours, but again going back to my comments the.

The reality is each of the operators have workflows in play to increase hiring and they're all working so it was just a unique situation.

<unk> the combination of the PTO and omicron that came so I am confident that it won't be a long term item in the industry, but exactly how it.

Our basis it'll be over time.

Thank you.

Your next question comes from the line of Tayo Okusanya from Credit Suisse. Please go ahead.

Yes.

Hi, everyone.

I wanted to talk a little bit more about the Reuben brothers transaction.

I'm intrigued by it just kind of given.

Again, the high quality assets that they tend to own over here.

Okay.

Curious, how big that GE could become.

Hi.

The idea is you're going to be building stuff like the sunrise asset.

Fixed and second right in Central London is that the idea that.

The idea is to expand the JV.

To reflect the fact that UK societies aging.

Just like U S societies aging.

A lack of high quality product if you think about.

Sure.

Rubens you own a lot of extraordinary prime lands.

And Billy.

Billings obviously.

The Kingdom and we're looking at a lot of opportunities too.

<unk> platform and that could include trophy assets, just like you mentioned that Sunrise is 56th Street, which by the way open this quarter and is doing pretty well if you added new RQ under visit asset let us know.

Finally, so all the noise of the Covid.

And we're seeing some very early.

Low demand story, there, which is playing out pretty well, but it can be but it doesn't have to be just trophy assets.

Gotcha. Thank you.

Thank you.

Sure. Our last question comes from the line of Daniel Bernstein from capital One. Please go ahead.

Good morning.

To ask a question here last question.

So.

You talked about ramping up through development team.

I was looking at your slide in your supplemental.

Pretty noticeable that you only.

Three of Ob properties under development almost everything else is seniors housing so.

Hoping you might be able to talk about on the <unk>.

<unk> side.

Yes.

The lack of development there is for lack of opportunity versus the lack of value is certainly on the acquisition side.

You talked about.

In an inflationary environment, you don't want to buy four five cap assets with 2% growth.

But on the development side sort of a different story there.

Yes. So a couple of things first is our it will be pipeline is actually pretty meaningful.

I don't know than what's in the south versus what's been reported in non reported I can tell you that the it will be.

Pipeline.

Is very very significant its 1 million plus square feet that fully leased so its probably not reported yet.

What you see is reported as a senior housing.

Is because we don't separate out what senior housing form.

Housing business, it's all reported as one bucket.

Very substantial portion of our development activity is on the wireless side of the house rather than on the senior side of the hub.

And then the <unk> side of the house they are very targeted but theyre very large buildings right. So think about I'll give you. An example, I mean, it's 56th Street, which has delivered a $300 million asset do you think about 1001 van Ness, that's roughly a $300 million asset Hudson yards, as a 400 plus million dollar asset.

Brookline is $150 million of assets right, we've talked about kisco, that's a $170 billion of assets talking about too.

So you have very few assets there that are substantial that does make a difference to the number but from a number of properties perspective actually not that high and the reason being frankly speaking other than very special situations and I think about.

<unk> thousand one Vanessa is going to be the most trophy building in San Francisco period full stop I think about Brookline is the fact that we got something entitled in Brooklyn.

In middle of efficient Hill, right next to the Brookline country clubs actually would have taken probably 15 years to do right. So just so it's a special opportunity and that's why we're executing but other than that senior housing development today in my opinion doesn't.

Doesn't make a lot of sense and the reason it doesn't make a lot of sense is you don't know where the ultimate.

Labor cost adjusted rent will land you just don't know that and there is no reason to go and get that and just obviously if you are doing for their own capital if youre <unk> to help our audit fee only operator, which is mostly the people who are seeing starting to to help them. These days.

They have no money on the line right. If it walks out is great I have a promote if it doesn't and somebody else lost money.

So I just don't see how that work, particularly in the context of very high cost and high financing cost right. So.

It just goes back to my point that I made earlier.

LIBOR based on floating rate based construction loan industry. So we are thinking about giving you additional disclosure sometime this year about what's the wireless side of the house versus Cvs side of the house.

And we'll get to that but majority of our new activity is on the wellness side of the house, where we're a lot more confident.

And where the margin land.

And frankly speaking the cap rates are much much much tighter to create value on the acquisition side. So focus on the development and Youre going to see as I said the pipeline is very strong and then when we need help in sight and that's coming through.

Said.

Finish it by saying what you have said on the question very important one.

Still no one has explained to me how someone makes money.

In a significant inflationary environment on a real basis not on a nominal basis.

With an asset class that grows 2% with a 400 cap rate when you have inflation is much higher.

Will someone easier to explain me that and unless I believe that was not be active on the acquisition side. You saw we bought a small and won't be portfolio.

<unk>, which was of high quality portfolio and in <unk>, We bought we bought it at a five five cap.

Which I have said for multiple years is sort of gives you the right level of IRR.

Thank you.

That concludes today's Q&A session and today's conference call. Thank you for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the Q4 2021, well Tower, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised that.

Today's conference is being recorded if you require any further assistance. Please press star zero.

I would now like to hand, the conference over to your first speaker today to Mr. Matt Mcqueen General Counsel. Please go ahead.

And good morning, as a reminder, certain statements made during this call maybe deemed forward looking statements in the meaning of the private Securities Litigation Reform Act, Although <unk> believes any forward looking statements are based on reasonable assumptions. The company can give no assurance that its projected results will be attained.

Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the company's filings with the FCC and with that I'll hand, the call over to sharp.

Thank you, Matt and good morning, everyone I'll review the quarter reflect back on 2021 on the year end call.

Walk you through high level business strength, and our capital allocation priorities.

John will provide an update on the operational environment for show and it will be portfolio and Tim will walk you through our triple it businesses balance sheet highlights and first quarter guidance.

2021 was a year marked by high conviction capital deployment partner and talent acquisition and a powerful inflection in our senior housing business our belief in the long term demand pieces for the senior housing proved out as we witnessed significant occupancy growth starting in the spring of loss.

Tier, which continued through the historically seasonally weak winter season.

Just as importantly in the second half of 2021, we began to see a significant significant shift in the pricing power.

Interestingly, we found this pricing power during a period of relatively low occupancy levels. After all what industry or asset class do you know off that is able to achieve pricing power with the occupancy levels in the low 70% range Lo behold that pricing power continued to trend down in <unk>.

Q4, and in the first quarter of this year, despite the impact of Delta and Omicron same store Revpar grew three 4% in Q4 following a year over year same store revenue growth of four 8%, while the strongest quarter in the company's history and even more encouraging.

<unk> is the revenue growth in the U S exceeded 6% with the momentum accelerating through fourth quarter, John will walk you through the details in a moment, though I am not happy with our top or bottom line results due to increased expenses, mainly from the omicron induced labor crisis I continue to believe.

We will see significant improvement throughout the year given the continued net hiring trends, we're seeing from our operating partners. This assumes we don't expand as a highly infectious variant.

We can offset the higher cost of full time employees just as we have done during the year prior to Covid. It has a significant presence of contract labor at surge pricing level that is a source of the source of the issue.

From a demand standpoint, we saw record interest in our product in Q4 that continued through January with inquiries up significantly from December however, a meaningful number of tourists got canceled or postponed as either the prospective resident or their family got COVID-19 or a community that <unk>.

Not having our employees to conduct the tour as there was a COVID-19 cases in their communities.

However, the towards that picked up meaningfully in recent weeks and we're starting to see strong sales activity, which should translate into higher net move ins in next three to four weeks.

If we're right about this you may see occupancy growth exceed seasonal trends, while offering in an environment of strong rate growth will protect this will put us into the double digit NOI growth range in Q1, all of the two excellent fodder throughout the year as disappointed.

As I am about the diminished bottom line flow through in Q4 due to $30 million for agency cost compared to only $5 million in Q1 of last year I continue to believe that our 2022 exit run rate and 2023 earnings power of this platform is unchanged.

Moving to capital allocation.

In 2021, we deployed $5 $7 billion across great real estate with fantastic, operator, and at even a better price.

The most incredible aspect of the story was the granular nature of execution with a media and transaction size of $26 million.

We're not believers in elephant hunting as larger transactions, usually result in value accruing to the seller.

As you know we manage this company for a long time shareholders to increase our share value Q4 was no exception to this consistent trend.

We have deployed $1 $4 billion of capital in Q4 across 20 separate transaction with a median size of $24 million.

I won't bore you with the details of every transaction, but I would be remiss not to mention a couple of that which I'm, particularly proud of including a handful of trophy buildings in Boston and Florida at a very attractive basis.

But perhaps the most exciting investment of the quarter was the formation of our partnership with Andy and plan at quality senior living or <unk>.

It is hard to overstate, how strong of a team Andy and Glenn have built from conceptualization of the product to development execution and ultimately that operational excellence. For example, despite all of the labor challenges that I've highlighted USL have used virtually no agency labor and their billings are well.

Occupied Andy who is one of the biggest users of our data analytics platform is embarking on a multiyear effort to expand that Blake brand with the full support of our platform behind him.

I hope Youre seeing a pattern here with how our data and predictive analytics platform at trucks. Some of the best people in the business as we offer so much more than capital.

This network effect of platform execution across multi year partnership that were formed over last few years will fuel our growth for years to come.

As Delta and Omicron induced challenges, we had their ugly head in Q4 capital deployment opportunity set only expanded and that continued in Q1, which is seasonally the weakest quarter from a deal activity.

After a strong close of 2021, we have already closed and approximately $600 million investment over last six weeks and I am pleased to report that our pipeline remained robust highly visible and actionable.

While our capital market backdrop to remain volatile of late driven primarily by the fed headlines, we're well positioned to fund our pipeline with well over $1 billion of equity and availability of liquidity in excess of $4 billion.

We're proud of our capital allocation track record more deployment in sourcing, but if capital markets volatility continues we will access different pools from our toolbox as we have done before.

Lastly, I am very proud to announce our new partnership with Reuben brothers, which is buying every healthcare one of our largest operating partner Reuben brothers partnered by David and Simon Reuben is one of the largest family offices and awards and as the owner of Prime real estate and infrastructure, both in U K and globally.

They're also a pioneer of investing in alternative real estate.

And infrastructure as an early investor and owner of global switch Reuben brothers share our optimism for the exceptional growth trajectory for healthcare and wellness infrastructure at Society Ages, we are particularly excited about the prospect of excite expanding the platform together as Reuben brothers.

One some of the most prime land and real estate in the UK, Tim and I have said on this call. Many times that temporary degradation of cash flow doesn't necessarily mean, the extraction of value every which constitutes 16% our same store triple net NOI will be.

And efficiently Delever through this equity infusion from Reuben brothers.

Partnering with highly sophisticated global investors like Reuben brothers validates our view of the long term value of this business. Despite wall streets obsession with pointed time coverage.

In conclusion, I am very proud.

Too far off our execution in 2021 across operations capital allocation and partnership that stage is set for a multi year earnings growth as we find ourselves at the bottom up both secular and cyclical.

Cycles with unparalleled platform builds with advanced data analytics, 20, or so of growth vehicles with different partners and talent to execute on it.

The pandemic has been devastating for our entire ecosystem, but we have doubled down during this massive disruption given our high conviction investment thesis you as our shareholders can rest assured that we will not be resting on our laurels and that will continue to dig deeper and wider mode with that I'll pass.

The dollar to John John . Thank you. So my comments today will focus on the performance of our management operating segments in the quarter.

Charting with our medical office portfolio in the fourth quarter, our outpatient medical segment delivered two 4% same store NOI growth over the prior year's quarter. Despite a 20 basis point decline in occupancy we continued to see strong retention rates at 86% in the fourth quarter and with increasing.

Construction costs and rising market rates, we will continue to push renewal rates and exchange and accept a reasonable level of increased turnover and related frictional vacancy as we maximize the value of the portfolio.

Now turning to our senior housing operating portfolio the strong demand based recovery in the senior housing business continues to strengthen the sho portfolio same store revenue increased four 8% in the fourth quarter of 2021 represented the first full period of year over year same store revenue growth since the beginning of the pandemic.

Occupancy grew 90 basis points over the prior year's quarter again, the first year over year increase in occupancy since the beginning of the pandemic and the largest year over year gain for any quarter since 2016.

Sequentially, the sho portfolio spot occupancy increased approximately 70 basis points during the fourth quarter to 77, 7%.

Compounding these strong occupancy trends is a notable shift in pricing power over the second half of the year operators has successfully raised and are again able to charge community raised rates and are again able to charge community fees, both of which were reflected in a three 4% year over year increase in revpar during the quarter.

And following an outsized increases in January and February renewals with little to no pushback, we expect further acceleration in revpar growth over the course of the year.

Geographically each of our markets, Canada, the UK and the U S are showing improvement in same store top line metrics through the quarter.

Our Canadian portfolio, which has lagged the recovery posted a year over year revenue decline of 3% in Q4 2021. However, the revenue decline improved intra quarter moving from a decline of four 2% in October 2021 to a decline of one 4% in December 'twenty one.

Compared to the prior year's respective months.

Sequentially. The Canadian same store portfolio grew at a revenue rate of one 8% in the fourth quarter.

In the U K, our same store revenue increased seven 8% during the fourth quarter on a year over year basis accelerating from seven 1% growth in October of 2021% to 9% in December of 2021 compared to the prior year's respective months.

Finally in the U S where the majority of our portfolio is located.

Year over year revenue growth in the fourth quarter was six 3%.

The acceleration in revenue growth was particularly pronounced in the U S accelerating from three 8% in October 21.

Versus the prior year's month to nine 1% in December .

Despite these encouraging topline trends expenses increased eight 8% year over year, driven largely by excessive agency cost the combination of holiday time off and omicron disruption led to an increase in agency costs in the quarter almost $4 five times agency expense versus the prior years.

Quarter.

Excluding agency cost expenses increased five 3%.

Stressing systems highlights opportunities and issues and the extreme stress in the health care system brought on by Covid has identified some opportunities to improve the value proposition for our hardworking health care workers.

The agencies have been a temporary a temporary crutch, which you provided short term option for both operators and the health care workers.

That said the excessive use of agencies is truly short term in nature and the exceptional premiums that they charge as much as six times the base rate during the recent holiday period do not pass through to the agency employees, who typically do not receive benefits either.

The quality of life and their work experience is substantially less desirable than that of a permanent employee.

Agency employees lack the connection to their co workers and customers that they desire as they travel from site to site city to city and state to state on a daily basis, often away from their families.

Additionally agency employees or less efficient as they do not know the systems, nor the processes of the operator or the site nor the specific customer requirement.

Our operators have many workflows underway at this time to improve the value proposition for permanent employees, which were bearing fruit prior to the AMA calls.

Nonetheless, the result of these outsized expenses was a decline in same store NOI of nine 3% in the fourth quarter of 2021, but still marked an improvement from Q3 2021.

With over 50% of operators delivering positive NOI growth for the period.

The recovery continues to strengthen and despite recent omnicom disruption.

And we remain confident in our ability to drive significant NOI growth in 2022.

Through January agency Labor expense has declined its death cases have fallen agency labor expense is expected to moderate further through the first half of 2022 and declined substantially in the second half of 2022.

The other disruption caused by Amazon was a record cancellation of tours, which self described however at this point weekly staff cases are down 81% from their peak, including an 89% drop in the U S and we're seeing operations normalize.

The disruption of tours and sales caused occupancy to fall about 20 basis points in January however, with the high level of traffic. We expect that the continued occupancy gains will return and that we will regain lost occupancy by the end of the quarter.

Here are some quotes from our operators about the strength of traffic and deposits.

Quote digital inquiries were up 36% over 2019 in the fourth quarter and continued strong in January .

And quote.

Our four week averages for inquiries tours and deposits are the highest they've been since August of 2021, we're seeing week over week growth in deposits up 10% the last four weeks running.

And quote where experienced experiencing the strongest January for inquiries in several years.

And finally quote our inquiries from the last week alone had been the highest numbers we've ever experienced.

In closing I have shifted from full immersion in the business to planning in action I'm.

I'm, even more excited about the future opportunities across the <unk> platform, we are leveraging our proprietary data analytics platform and operationalize the data to drive results. This process is occurring right now as we have several workflows underway, which we expect to bear fruit in the immediate future as well as many more workflows that we expect to drive our outperformance.

In the quarters and years to come.

Continue to be appreciative of the warm welcome and excitement expressed by our operators as we leverage our combined real estate operating company and care experience to improve the customer and employee experience and drive financial results.

Each operator has a unique expertise and opportunities we've been working very well together and offering support where needed from implementing best practices to applying data analytics to improve their business.

In one case, we identified a software tool over 25 years old.

As they say the 19th call then they want their <unk> back.

I am confident there is a substantial opportunity to implement operational excellence across the board and bringing the basic back office and sales operations up to match the high quality of care. The operators are delivering which will drive significant margin growth in the years to come.

I will now turn the call over to Tim.

Thank you John .

My comments today will focus on our fourth quarter 2021 results performance of our Triple net investment segments in the corner our capital activity.

Balance sheet and liquidity update and finally, our outlook for the first quarter.

While our reported fourth quarter net income attributable to common stockholders of <unk> 13 per diluted share and normalized funds from operations of 83 per diluted share relative to guidance of 78 to 83 per share.

Our results included approximately 18 million or <unk> <unk> per diluted share of HHS funds and other out of period government grants that were not previously budgeted.

Turning to our triple net lease portfolios.

As a reminder, our triple net lease portfolio coverage and occupancy stats reported a quarter in arrears. So these statistics reflect the trailing 12 months and a 932021.

And our senior housing Triple net portfolio same store NOI increased four 2% year over year.

Driven by improvements in rent collections on leases currently on cash recognition.

And the early impact of rental increases tied to CPI.

We expect the impact of both these trends to accelerate in 2020.

As rent collections improved.

And given that 20% of our leases are subject to CPI based escalators.

Trailing 12 month EBITDAR coverage was <unk> eight times.

Going forward, we expect coverages to inflect positively in the first half of 2022.

As year over year improvement in fundamentals file deposit trends expected in our senior housing operating portfolio.

Next our long term post acute portfolio generated negative 8% year over year same store NOI growth.

However, similar to our senior housing Triple net portfolio, we expect NOI growth to improve in 2022 through greater rent collections on leases currently in cash recognition as well as CPI based rent escalators.

Trailing 12 month EBITDAR coverage was one nine times.

Over the course of 2021 and completed $458 million and long term post acute dispositions at a blended cap rate of eight 7%.

With an additional $108 million under contract for sale at year end.

As a result, our long term post acute portfolio represented just five 2% of total in place NOI at year end versus 10, 1% at the end of 2020.

490 basis point decline driven largely by the exit of our <unk> relationship.

And lastly, health systems, which is comprised of our probiotic as senior care joint venture with <unk> health system.

And same store NOI growth of positive, 275% year over year and trailing 12 month EBITDAR coverage was three nine times.

The sequential improvement in coverage was driven by the previously announced agreement to sell 25 assets that have been contributing negative EBITDAR.

As of year end, we completed the sale of 21 of those assets with the remaining four held for sale.

Turning to capital market activity.

We continue to enhance our balance sheet strength and position the company to capitalize on a robust and highly visible pipeline of capital deployment opportunities are utilizing our ATM program to fund those near term transactions.

Since the beginning of the fourth quarter, we sold 11 3 million shares via a forward sale agreements and initial weighted average price $85 <unk> per share for expected gross proceeds of $961 million.

We currently have approximately $11 1 million shares remaining unsettled.

You are expecting to generate future proceeds of $949 million.

This is in addition to $220 million of.

Expected property dispositions and loan payoff proceeds.

During the quarter, we also issued $500 million of 10 year unsecured debt maturing in 2032 with a coupon of 275%.

Following similar discipline in their equity funding strategy. This is our third unsecured issuance in 2021, bringing full year issuance to 175 billion with an average duration of nine five years and a coupon of two 6%.

At year end, when factoring in cash and restricted cash balances our liquidity position exceeded the $4 billion of borrowing capacity on our line of credit.

When combined with the previously mentioned $1 2 billion combined unsettled ATM proceeds and expected disposition proceeds we are in a very strong liquidity position heading into 2022.

We ended the fourth quarter was 695 times net debt to annualized adjusted EBITDA.

Slightly from last quarter.

Leverage is impacted by the timing of $1 5 billion net investment activity completed later in the quarter.

If we run rate the impact net investment activity completed in the quarter pro forma net debt to adjusted EBITDA decreased to 675 times.

We continue to be pleased with the momentum of our top line recovery and our senior housing operating portfolio with portfolio spot occupancy ending the quarter at 77, 7%.

70 basis points higher than the end of the prior quarter, but still 950 basis points below pre COVID-19 levels.

The portfolio also said 300 basis points below peak occupancy levels.

Setting the stage for powerful EBITDA recovery as occupancy upside in strong rate growth is coupled with significant margin expansion on a very depressed base.

Lastly, moving to our first quarter outlook.

Last night, we provided an outlook for the first quarter of net income attributable to common stockholders per diluted share of <unk> 17 to 22 per share and normalized <unk> per diluted share of 79 to 84.

Or <unk> 81, and a half cents at the midpoint.

This guidance takes into consideration approximately $6 million or $1.05 per share of HHS funds expected to be received in the first quarter.

Excluding the HHS funds, the <unk> 80 per share midpoint of our first quarter guidance represents a penny and a half sequential increase from an ads adjusted $78.05 per share number for <unk>.

Which excludes $18 million of previously recognized HHS and out of period, you can't Canadian subsidy is recognized the quarter.

This one 5% increase is composed of two five from a sequential increase in senior housing operating portfolio, NOI and fourth quarter investment activity and.

And an offset of <unk> increase of sequential G&A and income taxes.

Underlying this <unk> guidance is estimated first quarter total portfolio year over year same store growth of 7%.

Driven by sub segment growth.

Outpatient medical 1% to 2% growth long term post acute 1% to 2% health systems to 75%.

Senior housing Triple net 5% to 6% and finally senior housing operating.

Approximately 15% driven.

Driven by revenue growth of 10%.

Underlying this revenue growth and an expectation of approximately 420 basis points of year over year average occupancy increase.

And with that I will hand tobacco the call back over to Sean.

Thanks, Tim.

Wanted to conclude this call by addressing something that we usually don't talk about it.

That is our comprehensive team.

We have completed a completely overhauled and upgraded our team and this was a multiyear effort building out new areas, such as predictive analytics to create a truly scalable platform with extremely low voluntary turnover.

We continue to hire the best and the brightest to further deepen our capital allocation expertise.

Historically, the majority of the Alpha we created have been through as to raising our deployment of capital over.

Over the last 15 months, though we have also built out an industry, leading and frankly, a very significant development team under the leadership of Mike Fay and I should mention.

The last piece of this puzzle is building out our operational excellence and asset management capabilities. This started with the hiring of John in 2021, John is building out a world class team that will accelerate value creation for our shareholders for years to come we have added a net 51 people last year.

We will likely to add another 80, new colleagues in 2020 too.

Many of you who follow our company closely understand that our asset platform is like a coiled spring today, we spend heavily during the pandemic, but most of these assets are sitting with low occupancy and then does cash flow, which is about to be released and search forward to.

Realize its full value.

Similarly, the people side of our business platform is also a coiled spring today.

You are only seeing them in G&A line, but the full contribution to the revenue line will be seen in 2023 and beyond.

With that operator, please open up the call for questions.

Thank you Sir.

If you have a question at this time. Please press the Star Key then one key on your Touchtone telephone if.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

We ask that you keep your questions to no more than one but please feel free to go back into the queue and if time permits we'll be more than happy to take your follow up questions at that time.

Our first question comes from the line of Jonathan Hughes from Raymond James. Please go ahead.

Hey, good morning.

I wanted to.

Ask about the <unk>.

Quality of the operator relationships in the pipeline or maybe generally out there in the seniors housing industry.

I was just wondering what the landscape looks like after a couple of years of pandemic related headwinds and you have a few in progress <unk> had successes.

Over the past few years, but how many high quality operators remain as an opportunity that you don't already have a relationship with and.

What's the size of those individual opportunities or are they smaller and larger in terms of investment volume than the relationships established over the past few years. Thanks.

Fantastic question Jonathan.

As I sit right now I can think of two operators.

That in U S, particularly due.

This is a U S specific comment and they will probably be the same for UK and Canada that I can think of to specific operators that we don't have.

Relationship today that I want to have a relationship one of them, we already have shaken a hand shaking our hands this quarter likely probably we're going to talk about at next quarter's call.

So what you're likely to see that means is we generally have the operator base. The platform that we wanted to build you will recall that before pandemic, we've talked about with you that we have a map right.

And that map, we have different ideas of where the different types of activities of assets should be and what kind of operator should be running those right. We kind of generally feel that map now what youre going to see we're going to go deep and so going broad, which you have seen over last call. It 18 to 24 months, you're going to see US go very deep.

And that sort of talks about we have a slide on our presentation. You can see that we talked about give or take these 20.

25% to 30 relationships across all asset classes, not just senior housing senior housing medical office and while as housing all three platforms that we are growing pretty significantly that we think create a very significant opportunity of external growth that we estimate could be upwards of $2 2 billion last year.

For a decade to come.

But that's sort of how we're thinking about it is going deep and so going broad, but we'll talk about hopefully another exceptional operator relationship next quarter.

Yes.

Sure.

Okay. Thank you.

Next question comes from the line of Nick Joseph from Citi. Please go ahead.

John you talked about the challenges with the staffing.

Agency model as you think about coming out of Covid do you expect the business model or expense load to change to rely less on agency staffing or is this more of a perfect storm.

Hard to actually change going forward to limit the use in times of crisis.

No. Thank you Nick.

So my expectation is that that the business will at least get back to historical standards, where agency with a small part of the whole picture just was.

Assistance piece, but frankly with the workflows going on.

I think it's a very strong chance that agent.

Agency diminishes, even further because.

What has changed is the world has gone from a situation where there is an abundance of employees to a scarcity of employees and so the employers now.

The good ones have recognized that fundamentally changed how they look at things recruiting has become a sales machine with kpis for the recruiters et cetera.

The value proposition has changed dramatically people are looking at what it what the employee experiences words that whenever said employee experience, you'll hear that theyre looking at that and they are trying to figure out how to optimize so some changes that are going on where people are realizing like hey, we should change our hours slightly for some employees because they have to drop their chills.

Often school they can't work here because of when we start not a big deal for us moving an hour and it works perfectly for them lot of things like that are changing so I think from my perspective, it's great for the hardworking health care employees it'll be great for the operators.

We will further diminish the agencies, but it will take time for this to tail off as I mentioned in my comments. So it won't happen overnight, but I think long run run rate would be great.

Thank you.

I show. Our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Thanks, so much for taking the question. So just a question on rent growth or Revpar and margins and just two parts to it.

Just one in the in the strong pricing power, you're seeing can you talk about the mix between the in place bumps.

Re leasing or the spread you are seeing today and what your expectations are and then on margin in your bridge. It maybe it's not the right way to look at it but in your bridge. It seems like you're embedding, maybe a $60 to 70% incremental margin.

No.

But how are you thinking about the incremental in the context of pricing policy.

Yes.

Yes, so on the <unk>.

You managed to get two questions in that looks good.

Yeah.

On the on the re leasing versus the market clearly net effective markets are up significantly there were concessions and community fees that well concessions that were given communities that were waived that's all reversed itself.

And so certainly at one point, if you go back and the industry market rents were below in place that's now changing.

And from an in place perspective and overall.

Rents are moving up pretty significantly very consistent with the comments that I made previously with the expectations of.

Mid fives too.

<unk>.

Bob.

And 10% in that zone.

What we're seeing is a lot of strength in the marketplace and a recognition that cost.

Cost have come up and it takes a certain amount of money to provide great care and that's what people want.

Vikram to answer your second question, we are getting you back to the pre COVID-19 margin on that slide I think youre, referring to slide 17.

There's no question that if you have pricing power that will improve but remember you also have higher labor costs.

To the extent that you have.

Higher pricing Paul are in excess of higher labor costs, Youll see upside to that margin, but it is getting you back to Q4 margin.

Q4 up 19 margin for the portfolio that was there in Q4 up 19%.

Thank you.

I show. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.

Hi, everyone. Good morning. So in 2021, you had $5 7 billion and gross investments off to a solid start here in 'twenty. Two so do you believe 2021 number is the high watermark is that level of acquisitions repeatable or even beautiful this year and is there anything.

Change in your terms of your ability to source opportunities or even competition for deals since our last call.

Has anything changed the answer is yes, if you think about.

What we have been saying that we are mostly focused on what we have been buying.

You can see the average age of those assets would indicate that the children.

Supply over a cycle of 15% to 19.

What you have is disruption from the revenue side because of all these way and then you had a disruption from the cost side because of our employee situation that we've talked about something changed that something has been lost call. It 45 days and that is what you didn't have is the pressure from financing cost all construction loan.

I made a LIBOR rate pretty much all construction loans are variable rate LIBOR based loan.

And obviously, if you look at the how the outlook for fed has changed over the last call. It 45 to 60 days.

Can't imagine that's hard pressure is just about to come which is high financing cost so something has changed.

On.

Now going back is this the level of acquisition possible or beatable.

Answer to that question is very simple, we're not a volume driven investor were value driven investor.

The volume is there to create partial value we will do it if not we will not do it that just a simple how allocate capital. The success of the team is not measured at least our team in our opinion is not the growth of the enterprise, but our share value creation for existing shareholders.

So as long as that opportunity is there we'll absolutely do it.

Thank you.

Our next question comes from the line of Steve <unk> from Evercore ISI. Please go ahead.

Yes. Thanks.

I guess I just wanted to circle back a little bit on the guidance just to make sure I understood.

10%.

Revenue growth that you talked about four for show.

Again, what was occupancy and and what was rent and and then what is included in the expense side from the elevated levels that you saw in Q4 are you sort of assuming the same level in Q1 as Q4 or did you assume some moderation. Thank you.

Yes, Thanks, Steve.

So on the revenue side, we're assuming 420 basis points.

Occupancy increase and a year over year basis, driving that 10% revenue growth for the remainder of that revenue growth is being driven by.

Great.

And on the expense side.

The best way to look at it sequentially Im talking a lot about.

Agency labor.

We are assuming a sequential reduction in agency labor and about 10% from the fourth quarter to the first quarter than that Paul.

That's supported by early trends we've seen.

In the quarter.

Thank you.

I show. Our next question comes from the line of Rich Hill from Morgan Stanley . Please go ahead.

Hey, good morning, guys.

I recognize you're not giving a full year guide, but I think back to <unk> 'twenty one.

Some bread crumbs given on where.

Renewals and maybe street rates are trending based upon my notes one of your competitors have talked about.

8% renewals and I think you had talked about one five to two times faster than renewals for street rate.

I'm wondering if you could just provide any updates on that as we think through what full year 2022 might look like.

John just talked about that.

The street rate comment I made is a net effective rent.

And you are seeing because obviously the concessions that were given.

Lack of community fees that you had the effective net street rate is moving up because of that not necessarily the faces moving but the net effective rent is moving.

We continue to see in fact, we have seen.

Some cup.

A couple of our operators have now moved Sri create evolving place trend a couple of our very large operators have gotten much closer so it's a pretty encouraging as.

As we look into the future.

Tim just walked you through our 10% guidance means from a rate and occupancy perspective and that sort of gives you. The second answer to that question right. So we are in a shop, we're focused on.

Ultimately optimization of revenue not necessarily one component of the revenue and on top of that you have to think about one component of that revenue comes with higher cost, which is labor rate. If you just occupancy.

Which obviously doesn't so we're trying to optimize all of those things together and thats sort of blends to what we've talked about which is a 10 ish percent revenue growth in Q1, 15%.

High growth in Q1, and that NOI growth should continue to accelerate as we get to the year for two reasons. One is as you build occupancy you will get obviously your marginal margin will expand obviously rates so that thats one point.

You will get a continuation of sort of burn off of the agency labor that you've got so that's sort of two things together you will get an explanation of NOI growth as we get to the second half of the year.

Thank you.

I show. Our next question comes from the line of Juan Sanabria from BMO capital markets. Please go ahead.

Hi, good morning, Thanks for the time.

Recognizing again, you're not giving full year guidance for winning the larger operators space talks about.

Five to 600 basis points of occupancy growth for the year is there a target. So curious how you feel excluding any new COVID-19 wave.

How how that feels to you.

Particularly given seasonality is still apparent in that business are typically you don't necessarily gain occupancy outside of the third quarter. So just curious about your general commentary and targets for occupancy growth for the year.

Yes. So first you said the magic word excluding any more new variant right. So that's a very important what you mentioned there and despite that I'm not going to venture a guess of what it will look like.

I will tell you there are a couple of things to think about.

Last year, you got a massive disruption in Q1, we got a significant occupancy loss.

Started at a big hole and you have to climb up that hole to get to a point where on an average basis. You can build out documents. So you don't have that problem. This year right John talked about January our occupancy from point to point is down 20 basis points, which is probably will make this January the best January we ever had seasoned.

LNG perspective, so you don't have a hole to climb on second.

You have better demographics. This year you can see the demographics is building.

So you have more demand there and that sort of playing out for all the leads and other data that John disclosed on his script tart significantly lower number of deliveries this year right.

And then if you under your assumption if we don't get hit by four waves like we did last year.

And hopefully that will translate into better occupancy growth I am not going to comment on any specific operator or try to sort of venture I guess or what.

<unk> is going to look like however, the table is set if all of these things. We just discussed lay out we will see a better year, but we're long term investors, we're not focused on in the <unk>.

Occupancy plays out this quarter versus that quarter, but we're pretty optimistic because of what the underlying trends we see in the marketplace.

Thank you.

I show. Our next question comes from the line of Mike Mueller from JP Morgan. Please go ahead.

Yeah, Hi, just curious on the watermark transaction.

The pricing difference between.

The entry fee assets versus the rental just in terms of like a rough cap rate difference.

Mike, we're not going to get into.

Specific deal let alone.

Thanks within that specific deal right. Obviously as you know how these things play out is that you sign a confidentiality agreement with the seller will not going to get into it we have talked about I believe in the last call.

What we like about that transaction is.

The price per unit was very attractive to us b cell of the underlying land.

Ultimately as you are thinking about real estate investment and you have to think about the dark.

<unk> Dart and three we think there is value to be created.

Because what these assets are in the lands that come with it and what you can do with the zoning.

With all of those three combined we are very excited about.

The portfolio we bought.

We're not going to get into economics of a specific deal let alone different pops up that deal that test will put us in a significant violation of confidentially agreement that we've signed.

Thank you.

Our next question comes from the line of Conor and Seversky from Baird. Please go ahead.

Good morning out there thanks for having me on the call I just want to keep this simple focusing on senior housing in particular in consideration of the value based investment approach. So in this positive environment for pricing I mean, do you expect to see some cap rate compression. This year increased competition and then.

How does this change the opportunity set for you does that mean more excuse me granular transactions or.

Perhaps a restriction in activity on your end or expectations on your end.

Yeah, Conor I answered. This question earlier I am just going to repeat what I said.

What's changed is desert tart stress that's coming in.

And that's because the majority of.

Construction.

Loans are done on a floating rate basis, if not all of them are done on a floating rate basis.

And you have a very significant sort of a potential increase of LIBOR, that's coming to the pipe.

That will put even more stress in the system.

And the second point is we're not cap rate buyers. It is hard to cap rate as a stabilized concept for senior housing is anywhere but stabilized at this point I do not expect cap rates. Even if you are talking about in the context of stabilize.

Cap rate I do not believe there is going to be as.

Significant compression in fact, I think lot of institutional investors that are looking at all asset classes, including many we own and then we've talked about historically.

That underlying growth rate versus the inflation at southern Capex makes no sense right I've talked about for example, four quarter softer quarters that given sort of the outlook of what the forward cargo is telling you.

Inflation breakeven another it made no sense to me for what people are paying for <unk> with 2% growth rate. Finally, it seems like there is.

Obviously understanding on the institutional investor side people are waking up to say what did they buy for this and how do I make return.

So I think there has to be a conciliation off.

When you look at your IRR you have to think about what is the real growth for us at a nominal growth and.

That's going to show up that's going to show up at your exit.

We're long term IRR buyers, we think through these things and Thats why we refuse to chase. The market you have seen that for years and years, we have done and there is not going to be any different in that discipline going forward.

Thank you.

I show. Our next question comes from the line of Rich Anderson from <unk>. Please go ahead.

Thanks.

Good morning so.

Sean you have said in the past that you are not likely.

Likely to be an elephant hunter.

<unk>.

How do you get noise in the system. When you go to big and I can appreciate that but that is a different mentality versus your predecessor.

So if youre not willing to be a buyer.

And as an elephant Hunter.

Is there anything that you could see from from us from a sales perspective that could be I mean, if youre a $26 million average deal price on the buy side. What do you think your average deal price would be on the sell side given that mentality toward.

Very good question, it's extremely astute observation look at 2020 and look at how many billions we sold and if you looked at the disposition you will see sales were down on a multiple of the buys right I don't know exactly what the number is but it is likely to be multiple of that 'twenty four.

Million $26 million that we mentioned, we want to buy retail.

And so by wholesale and sell retail that's what we do right.

Sunday mentally no matter what investment class you off.

Very simple how you make money is buy low sell high right that ultimately is how you allocate capital to make money.

So portfolio.

A lot of hunger in the market to buy stock and asset class.

The portfolio of premiums are real.

Hugo sell portfolios Baidu by smaller assets I think we mentioned that $5 $7 billion, we bought medium size of the transaction.

Median size of the building median size of the transaction was 26 minutes, that's how we create real value.

Thank you I show. Our next question comes from the line of John Pawlowski from Green Street. Please go ahead.

Hey, Thanks for the time, John as you tick through the shop portfolio either by property type al IL al memory care geography are there any signs within the portfolio of structurally higher vacancy rates, while were made a move in percentages or just.

Just not improving in recent months or occupancies actually sliding here.

No.

Each area is.

Improving across the board.

Starting point that we're out right now is of course pretty low so the bar is low to build from.

As we get to an optimal level, which would be substantially higher.

Question is a good question and there may be some some things that become more apparent but.

At this point in time everything is working across the board.

Thank you.

I show. Our next question comes from the line of Michael Carroll from RBC Capital markets. Please go ahead.

Yes, Thanks, Tom I wanted to transition to the Triple net portfolio for a second.

Tim can you quantify how many triple net tenants are on a cash basis today and what's the difference between the current cash is being paid and recognized compared to the contractual rents on those leases.

Yes.

In the first quarter, we are starting the fourth quarter about 15% to 20%, it's kind of stayed within that range.

For most of the last few quarters. So that's the quantum of kind of.

Of.

Of how much of that in place rent is being recognized net cash basis.

I don't have the GAAP too.

To contractual right now.

But Mike remember.

All are.

The Triple net senior housing portfolio is in U S and UK right.

And you can see how much that cash flows.

Inflected at are expected to be inflicted this year because they are obviously on cash the underlying.

NOI, what we eat and underlying NOI is going up significantly which is translating into that same store triple net.

Growth expectation that Tim just gave you.

In other words, we took the head.

Putting it obviously on cash recognition Tim talked about that on many calls now we're on the other side of that.

Thank you.

I show. Our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.

Great. Thanks, good morning.

So I thought your commentary on the labor expense that was definitely helpful. I guess I'm curious for the $30 million of the agency labor expense.

<unk> in the fourth quarter is there any further color on whether that was fairly evenly spread geographically across the shop portfolio or did you find that is geographically concentrated maybe in a few markets and also since we'll have more of an urban footprint and shop overall, just any generalization from your view weather labor shortage issues are more or less prevalent.

<unk> and rural versus urban markets just in general thanks.

Sure.

A great question and we've done an awful lot of studies on that particular issue leveraging our data analytics team.

The interesting thing that we found is.

It gets back to my comment on stress identifies opportunities and issues and.

When looking at it closely clearly some markets can have a level of stress specific to that market, but then when you dig deeper and you find out that tremendous amount of assets have zero labor and selected assets have a lot of agency selective assets have a lot of agency.

The cause of that is a combination of in some cases omicron came in and had a material impact on a great amount of staff, which is no surprise and other cases my belief frankly is leadership.

And that's partly what gives me great optimism.

Moving forward in solving this because the leadership issues are solvable and the leadership issues that this is one indication, but they also tie to other issues occupancy et cetera. So this frankly it helps us identify.

Some situations that will as we make adjustments, we will improve things going forward dramatically.

So hopefully thats helpful. Thank you.

Thank you.

I show. Our next question comes from the line of Jordan Sadler from Keybanc capital market.

Thank you guys good morning.

Good morning.

Good morning.

Wanted to.

This is sort of a little bit of a two parter one I wanted to clarify the.

Contract labor assumption embedded in <unk>, I think you said down 10% so.

$30 million of expense becomes $27 million is that the way to think about it and then.

<unk>.

Just kind of thinking about the cadence.

Your guidance for the shop portfolio in particular right last time, you gave sequential guidance for <unk> right. We ended up with a surprise variant late in the quarter that ended up.

Providing pretty significant headwinds, especially on the labor front.

And pressured.

Number is lower relative to original expectations, where I'm curious.

How much that experienced in the fourth quarter impacted short.

Decision surrounding guidance for the first quarter in other words.

Appears kind of conservative relative to the.

Moderation in expenses and what seems to be a flat occupancy assumption.

For the first quarter overall.

The fact that you only lost 20 basis points in January so I know Thats I've asked a lot there, but I'm basically asking about the cadence on giving guidance.

Yes, so John why don't I start and tumult finished first to understand.

Q1 is seasonally a weak period from an occupancy standpoint, so John talked about we're down in January about 20 basis points.

And what kind of thinking obviously, the sales activity picked up pretty significantly towards have picked up and we are thinking.

As sales picked up you'll get some lag rate call. It 20% to 30 days lag from sales to occupancy so that kind of puts you at it.

Towards the end of the quarter. So you don't have a lot of time to pick up that occupancy rate. So that's sort of I wouldn't call that a conservative right I wouldn't call that what we think was going to happen.

Up 10 downturn, okay, but that's sort of generally speaking I want you to understand what we're thinking about.

You are right I mean, that's.

On average quarter average Q1 occupancy goes down about 70 80 basis points.

So you get sequentially flat, which would probably put on average are flat and significant year over growth.

That's a pretty good outcome because you have to think about what that means for the rest of the year right. It's not about just Q1.

Second point is.

Look I mean.

I am pretty disappointed about the bottom line results in Q4, there is no two ways about it we did not expect the omicron will hit us like the way it did.

And frankly speaking there's 45 more days to go in the quarter and as we have seen it's highly infectious varian comps and how that can impact you.

Quarter to quarter, Jordan, who knows right I mean, we're focused on.

What's the real run rate earnings power of the platform.

What we see is pretty exciting at least what we see today.

But it's hard to get into specifics on when things happen you have an operating business right, which is driving the modular differences try to get very very.

Prescriptive about how exactly things are going to play out its hard to comment.

I would just add to the labor piece of that agency piece Jordan. So your math is correct on the expectation kind of the step down.

And I don't think what happened in the fourth quarter necessarily changes.

Certainly very carefully as anywhere like conservative that were forecasting, but the variance in what we've seen happen over the waves.

The labor disruption has been much greater than the demand disruption takes it over the last two way and the nonrecurring.

The significant labor disruption so certain changes when you forecast from the inputs and confidence levels around it so that saying it's conservative it's more of a.

There are a lot of uncertainty in the short term.

The labor piece and how it's impacting labor market.

It being.

Marion.

The phase III I think a longer term forecast right now so.

I think as I said earlier I think the early trends we're seeing.

In January are very supportive of our view on the step down in agency and we thought that was going to be a little bit more back half of the quarter weighted.

But.

I think in general and still stands at a pretty good assumption.

Thank you.

Next question comes from the line of Nick <unk> from Scotia Bank. Please go ahead.

Thanks, So I just wanted to follow up here on this agency question. So.

It sounds like it could be about 27 million for those costs in the first quarter or if you go back to the third quarter I think it was $20 million. So still up versus then and just trying to hear a little bit more about your assumption for why at some point that expense, which is about 3% of your expenses.

It goes away and why you're confident that it's a COVID-19 issue and not a tight labor market issue, that's driving the use of.

That agency costs.

Well, it's both no doubt about it it's both and when you look at the fourth quarter. Some more color on that is you have got some health care workers all of the health care workers, who have worked unbelievably tirelessly work and did not take PTO.

For a long long periods of time. So you had increased PTO that occurred around the holiday season, and then you add in Omicron and you get the result of agency at six X. So agencies, usually two to three times the rate and it got as high as six exits.

Surge pricing kind of like Uber, so as that backs away that will lower the expense regardless of the hours, but again going back to my comments the.

The reality is each of the operators have workflows in play to increase hiring and they're all working so it was just a unique situation the combination of the PTO and omicron that came in.

Confident that it won't be a long term item in the industry, but exactly how it.

Yes, it'll be over time.

Thank you.

I show. Our next question comes from the line of Tayo Okusanya from Credit Suisse. Please go ahead.

Yes.

Hi, everyone.

Wanted to talk a little bit more about.

Reuben brothers transaction.

I'm intrigued by it just kind of given.

Again, the high quality assets that they tend to own over here in the U K Q.

Curious, how big that GE could become over time.

The idea is you are going to be building stuff like the sunrise asset.

At 66, then second right in Central London is that the idea there.

The idea is.

To expand the JV.

To reflect the fact that U K societies aging Jess.

Just like U S societies aging.

Lack of high quality product, if you think about.

<unk>.

Ruben you own a lot of extraordinary prime lands.

End of.

Billings, obviously all of the.

Kingdom.

We're looking at a lot of opportunities too.

Grow the platform and that could include trophy assets, just like you mentioned that Sunrise is.

Is 56th Street, which by the way open this quarter and is doing pretty well if you added new RQ under visit asset let us know.

Finally through all the noise of the Covid.

And we're seeing some very early very early demand story, there, which is playing out pretty well, but it can be but it doesn't have to be just trophy assets.

Gotcha. Thank you.

Thank you.

Sure. Our last question comes from the line of Daniel Bernstein from capital One. Please go ahead.

Good morning.

Asking question here.

Second.

So.

You talked about ramping up through development team and when I was looking at your slide in your supplemental.

Pretty noticeable that you only.

I have three of Ob properties under development almost everything else is seniors housing. So I was hoping you might be able to talk about on the <unk> side.

Yes.

The lack of development there is for lack of opportunity versus the lack of value is certainly on the acquisition side.

You talked about.

And then inflationary environment, you don't want to buy four five cap assets with 2% growth.

But on the development side sort of a different story there.

Yes. So a couple of things first is our it will be pipeline is actually pretty meaningful.

I don't know than what's in the south versus what's been reported non reported I can tell you that the it will be.

Pipeline.

Is very very significant into 1 million plus square feet that fully leased so its probably not reported yet.

What you see is reported as a senior housing.

Is because we don't separate out what senior housing form.

Housing business, it's all reported as one bucket.

Very substantial portion of our development activity is all in the wireless side of the house rather than on the senior side of the hub.

And then the <unk> side of the house they are very targeted but they are very large buildings right. So think about I'll give you. An example, I mean, it's 56th Street, which has delivered a $300 million of assets do.

Do you think about that.

One van Ness, that's roughly $300 million asset Hudson yards, as a 400 plus million dollar asset Brook.

Brookline is $150 million of assets right, we've talked about kisco, that's $170 billion of assets Cardinals too.

So you have very few assets there that are substantial that does make a difference to that number but from a number of properties perspective actually not that high and the reason being frankly speaking other than very special situations I think about.

<unk> thousand one Vanessa is going to be the most trophy building in San Francisco period full stop I think about Brookline now is the fact that we got something entitled in Brooklyn.

In middle of efficient Hill right next to the Brookline country club that would have taken probably 15 years to do right. So just so it's a special opportunity and that's why we're executing but other than that senior housing development today in my opinion doesn't.

It doesn't make a lot of sense and the reason it doesn't make a lot of sense is you don't know where the ultimate.

Labor cost adjusted rent will land you just don't know that and there is no reason to go and get that and just obviously if youre doing for me on capital. If you have <unk> to help our audit fee only operator, which is mostly the people who are I am seeing starting that help them. These days.

They have no money on the line right. If it works out it's great I have a promote if it doesn't and somebody else lost money.

So I just don't see how that work, particularly in the context of fairly high cost and higher financing costs right. So.

Just goes back to my point that I made earlier.

LIBOR based on floating rate based construction loan industry. So we are thinking about giving you additional disclosure sometime this year about what's the wireless side of the house versus Cvs side of the house.

And we'll get to that but majority of our new activity is on the wellness side of the house, where we're a lot more confident.

And where the margin lands.

And frankly speaking the cap rates are much much much tighter to create value on the acquisition side. So focused on the development and youre going to see as I said the pipeline is very strong name a redevelopment site and that's coming through.

Said.

Finish it by saying what you have said on that question very important one I still no. One has explained to me how someone makes money.

In a significant inflationary environment on a real basis not on a nominal basis.

With an asset class that grows 2% with a 400 cap rated when youre inflection is much higher.

Will someone easier to explain to me that in <unk>.

Unless I believe that will not be active on the acquisition side you saw we bought a small and won't be portfolio.

Which was a high quality portfolio around Anarbor, we bought we bought it at a five five cap.

Which I have said for multiple years it sort of gives you the right level of IRR.

Thank you.

That concludes today's Q&A session and today's conference call. Thank you for participating you may now disconnect.